Question

Select a product of your choice and discuss, based on research, if the product cost system should be job order or process cost. Why do you think this is the most appropriate costing system?

Answer 1

There are two traditional cost methods: Job order or process costs. Companies can use both the methods or any one of them. To know the price that should be charged from a customer for the product, companies need to determine the costs assigned to that product. Both these methods of costing helps the companies to find out the costs assigned to the product and to how much to charge from the customers.

Job Order Costing

It is a method of assigning costs to a particular product. It will assign costs to each job depending upon the different types of jobs. Different materials, different labour and overheads are used for each job. The cost for each job depends on how much raw materials, labour and overheads are applied to the respective jobs.

Process Costing

It is a method of assigning costs to a group of products or units. Companies who produce mass products or provide mass services of a particular product or service use this method. Companies will divide the total costs of the mass products by the number of products to determine per unit cost of a product.

If I choose a product i.e. toy , then the product cost system should be process cost as the company will make huge quantities of toys and it will determine the cost of each toy by dividing the total costs of the mass toy products by the number of toys produced. It is the most appropriate costing system when a general product is considered which is produced in mass quantities. Job costing is useful when the case is for a specific product, service or job.